The alternative finance market is becoming bigger, and more diverse. It is being driven by financial technology and proponents for change argue that fintech will level the playing field and alternative finance will soon become the new normal. Industry players who don’t step up to compete in this evolving ecosystem will be left behind.
Those are the findings from Consultancy Oliver Wyman’s latest report. The firm’s Financial Services Industry 2017 report, Transforming for Future Value, launched at the World Economic Forum and concludes that the entire traditional finance industry is under threat from financial technology, or “fintech”, start-ups.
In terms of growth fintech firms are outpacing traditional financial service providers and some will need to make clear, strategic choices about where and how they can compete as the world digitizes.
Innovative models and new tech have triggered the rapid changes. Without the shackles of legacy technology, alternative finance providers are more nimble and better able to develop new models that offer more to the investor.
While large incumbent banks, insurers, and asset managers still dominate the provision of financial services, new players are emerging at breakneck speed.
More collaboration between these new and old industry participants is predicted for the years ahead. By partnering with innovators, using cloud computing, exploring new datasets and analytic tools, and digitizing stubbornly inefficient processes incumbents can develop new sustainable competitive advantages. The fintech firms will gain benefit from the enormous investments made by large financial services in regulatory compliance procedures and the hard-to-replicate branch network that many of the banks have.
More competition, artificial intelligence (AI) and machine learning, are the watchwords for 2017. Customer intelligence will be the most important predictor of revenue growth and profitability and development in AI will start a wave of technology-driven innovation. Advances in algorithms, data collection, and unlimited computing power will bring radical improvements in precision, quality, and costs through the industry.